Although RFID tag prices have fallen in recent years-with common prices declining from about $5 a couple of years ago to under $1 today-Nabarro and others say they’ll consider tags for each product when the price gets closer to 5 cents. Some industry experts say it’s difficult to predict at this point when, or if, prices will fall that far-at least for most retailers. For large companies that can buy in bulk, several industry experts say, per-tag prices can already get to 10 cents or less, though this could require ordering hundreds of millions of tags.

AMR’s Abell, however, projects that as Wal-Mart and other large companies begin to deploy immense numbers of RFID tags and readers over the next several years, prices will drop significantly. He figures it’s possible that, within 10 years, per-tag prices could get as low as 2 cents, making them cost-effective for most products.

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In an ideal RFID project, RFID readers (currently priced at $300-$500 or more, but expected to drop within a few years to $100) positioned throughout a supply chain, in warehouse and distribution centers, and even on store shelves, could track tags placed on individual products. Each time a tagged product passes a reader, a signal could flash to a manager’s computer screen as well as to a back-end database to provide real-time information on product movement and location. So a store manager could check to see where a product or container of products was en route to a store or distribution center and corporate managers could access a web site to check on the status of merchandise throughout the chain.

In one test conducted by a national U.S. apparel retailer, the company realized a 12% increase in sales when it used RFID readers to monitor the movement of RFID-tagged shirts and bluejeans as customers picked them off store shelves, sending information on product movement to a back-end database to support a more effective replenishment system, says Allen of Texas Instruments.

That retailer, which Allen says he’s not at liberty to name, has put off further testing or deployment of that system, but other companies are already beginning similar tests.

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The Gillette Co. recently began to test the deployment of as many as 500 million RFID tags on retail packages of razor blades and other products to track their movement from production to the point of sale. The project, using RFID tags manufactured by Alien Technology Corp., is being developed in cooperation with the Auto-ID Center and the Massachusetts Institute of Technology.

As in the apparel retailer’s test, Gillette will use RFID tags and readers to monitor when products are removed from store shelves and forward that information to retail managers’ computer screens as well as to back-end databases. At least some of its RFID tags will also be designed to activate anti-theft alarms, such as those many retailers already have installed near their exits. “It will alert retail staff when stocks become low or are being stolen and will enable automatic re-ordering of products,” vice president Dick Cantwell, who’s heading up Gillette’s RFID initiative, said in announcing the project in January.

By offering visibility right down to store shelves and making that sales activity easily accessible over the web, retailers can better manage distribution throughout an entire chain of stores, Allen says. “If a national retailer sees that a particular area of the country has a sharp increase in sales of particular items, and that another part of the country has low sales of those items, it can shift inventory to the stores that need it most,” he says.

Allen notes that by enabling retailers to closely monitor the movement of products and containers, they’ll be able to reduce shrinkage and, therefore, lower the amount of inventory they have to keep in distribution centers. “Now they have to keep more inventory in the supply chain in order to make up for the fact that, on average, they don’t now where 15% of their inventory is,” he says. “But RFID will help everyone along the distribution line know where cartons are supposed to go, so they don’t get lost in the first place.”

As retailers begin to realize the opportunities RFID offers in saving operating costs and increasing sales, the perceived value of RFID will rise, says Abell of AMR. “Even at 10 cents, 15 cents, or more, tags are cheaper than the cost of not fixing the problems that the technology solves,” he says. l